EEPB Blog

Passive activity loss (PAL) rules can be tricky. Generally, PALs can only offset passive activity income, though taxpayers may treat activities of one or more trades or businesses as a single activity, if appropriate. However, when the IRS regrouped the income from a surgeon’s two businesses into one activity, the U.S. Tax Court called the treatment inappropriate on several grounds, including that income from the surgeon’s practice (a sole proprietorship) couldn’t be combined with his partnership interest in a surgical center under PAL rules. (TC Memo 2017-16)